TaxTMI 
TaxTMI 
2010 (11) TMI 1128
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....und No 1 in the appeal of the revenue for assessment year 2001-02, ground No 2 in assessment year 2002-03, and ground No. 1 in the A.Y. 200405 are directed against the order of the CIT(A) deleting the disallowance of depreciation Rs. 9,04,59,142 in A.Y. 2001-02, Rs. 6,78,44,356 in A.Y. 2002-03 and Rs. 1,76,67,150 in A.Y. 2004-05. 3. At the outset, the Ld. AR submitted that this issue is covered in favour of the assessee by the consolidated order of this Tribunal dated 17-7-2009 in the case of the assessee itself in A.Y. 1999-2000 and 2000-01 in ITA Nos. 1987 and 3526/AHD/2003. Therefore, following the same, the ground of appeal of the revenue should be dismissed. The Ld. A.R. also submitted that the leased assets are the same which were leased out in the A.Y. 1999-2000 and 2000-01 and the lease rental have been received from the very same parties. 4. The D.R. submitted that although the submission made by the A.R. was correct, but in the earlier years, nobody examined the issue in question with the agreement for lease transaction to ascertain whether the lease in question was a financial lease or operational lease. 5. We have heard the rival submissions and perused the ord....
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.... Ld. CIT(A) has quoted para-4.1 and 4.2 in his impugned order. He then referred to the findings of the tribunal as under:- "(a) The Ld. CIT(A) accordingly held that the AO was not justified in treating the transaction between the assessee and RSEB as paper transaction. The above finding of the CIT(A) has not been challenged by the revenue either by filing an appeal or in cross objection before the tribunal and as such has become final. (b) We have perused various documents, viz. i) Sale deed by RSEB in favour of the assessee executed on 20-9-95 copies of which have been given to us at page 1 to 5 of the paper book. ii) Invoice cum delivery challans given at page 6 of the paper book. iii) Notification issued by the Govt. of Rajasthan dated 18-3-95 wherein the Rajasthan Govt. had exempted from sales tax the sale of plant and machinery by RSEB to the assessee in public interest on the condition that the purchaser entered into a lease agreement with RSEB which was entered into as per a copy of lease agreement given to us at page 9 to 31 of the paper book. iv) Certificate for non claim of depreciation given by RSEB at page 32 of the ....
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...., therefore, decision taken in the earlier years has to be followed for the sake of consistency. Since no new facts are brought on record by the revenue, question of holding that sale and lease back transactions are only a financial transaction would not be proper. He further submitted that Hon. Rajasthan High court in CIT vs. Rajasthan State Electricity Board, 207 CTR 415 has held that sale cum lease back transaction entered into by RSEB were genuine and RSEB is entitled to deduction of lease rent paid by it. Thus, according to the Ld. AR in the case of RSEB the matter is settled by the Hon. Rajasthan High court. This decision of the Hon. Rajasthan High court has been followed by the Hon. Gujarat High Court in the case of CIT vs. Gujarat Gas Company Ltd. ["GGC" in short] in which case also sale and lease back transactions were entered into by Gujarat Gas Company Ltd. and RSEB and held that transactions entered into by GGC Ltd. were genuine and therefore the assessee was entitled to depreciation. Since facts of the present case are similar to the facts in the case of Gujarat Gas Co. [supra], there is no reason to take a different view. He submitted that ITAT 'C' bench in the case o....
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....der dated 12-7-2009 which is quoted above. Therefore, in the present years of appeals also, we confirm the order of the CIT (A) in vacating the disallowance of depreciation on sale and lease back transactions and dismiss the grounds of appeal of the revenue for all the years under consideration. 8. Ground No. 2 of the appeal in A.Y. 2001-02, ground No. 3 in A.Y. 2002-03, and ground No. 2 in A.Y. 2003-04 of the appeal of the revenue are directed against the order of the CIT(A) deleting disallowance of Rs. 64,22,000 in A.Y. 2001-02, Rs. 56,79,197 in A.Y. 2002-03 and Rs. 53,67,735 in A.Y. 2003-04 on account of development expenditure. 9. At the time of the hearing, the Ld. AR of the assessee submitted that similar issue is covered by the order of the tribunal in A.Y. 1999-2000 in I.T.A. No. 1987/AHD/2003 wherein by its finding given in page 7 para 12 to 13, the issue has been restored back to the file of the AO. It was argued that in that year, the issue was restored back by the tribunal as the assessee had not furnished evidences in support of its claim. He submitted that in the years under appeal, the facts are different, as the assessee has filed all the details before the AO....
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....rred was capital in nature, is wholly unsustainable. Only because an expenditure may result in some benefit in the unspecified subsequent period, does not make the revenue expenditure as capital expenditure. The other reason given by the AO that there is no direct co-relation between the amount of expenditure and number of subscribers, is also irrelevant for deciding the nature of expenditure or the allowability of the expenditure. For an expenditure being allowable, it is not necessary that the expenditure must have yielded immediate or quantifiable benefit to the assessee. In respect of the other argument of the revenue that expenditure was incurred gratuitously and not exclusively for the purposes of business, we find that it is not in dispute that the expenditure was incurred for giving benefit or gift to the subscribers of daily newspaper who paid the entire subscription of the year in advance. Thus, we find that the expenditure had a close nexus with the business of the assessee. No material was brought on record by the revenue to show that the expenditure in question was incurred for any other purpose except business consideration by the assessee. It is not the case of the r....
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.... .5,41,480 claimed by the assessee under the head 'sundry balances written off' in the A.Y. 2001-02. According to the AO, the debit of the P&L account towards sundry balances written off is not an expenditure incurred by the assessee for the purpose or in the course of its business. Therefore, the same is not deductible u/s. 37 of the Act. As the sundry balances written off is not in the nature of bad debts written off, the same is also not deductible since the conditions laid down in sec. 36(1)(vii) and 36(2) are not fulfilled. Similarly, the AO also disallowed Rs. 21,03,604 out of Rs. 23,73,578 claimed by the assessee under the head 'sundry debit balance written off'. According to the AO, assessee claimed Rs. 23,73,578 by writing off sundry debtors. According to the AO, assessee claimed these written off as in the nature of 'kasar'. He observed that the writing off includes balances above Rs. 10,000 in respect of number of parties. The writing off includes Rs. 11,85,286 in respect of Technova Imaging Systems, Rs. 2,72,435 in respect of Woodluck Associates and Rs. 1,17,997 in respect of Om Roadways. According to the AO, such large amount of writing off cannot be in the nature of '....
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....e has sold certain units within a span of hardly two days from the date of purchase and claimed short term capital gains in respect thereof. The AO found that units were purchased cum-dividend and sold exdividend. In view of the AO these transactions of purchase and sale of units were employed as a device to avoid the tax on the short term capital gain earned by the assessee on certain other transactions. According to the AO, considering the time gap between the purchase and sale, which is the span of hardly two, three days and even one day in the case of Kotak, it cannot be denied that even at the point of time of purchase of these units the assessee was well aware as to the realizable value thereof after one/two or three days. In his view, the difference in the value of purchase and sale is not ascribable to market forces or fluctuation in the rate of securities etc. In spite of this pre knowledge the assessee chose to purchase the securities and sold the same after one day in certain cases and after two or three days in certain case and claimed to have sustained loss. The AO disallowed short term capital loss on these transaction of units and also derived support from the ratio ....
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..... Having regard to the above factual position, it is not disputed fact that section 94(7) of the I.T.Act has been brought on statute w.e.f. 14.2002 i.e. A.Y.200203, the same cannot be applied for A.Y.2001-02 and the contention of the appellant's representative on this count is therefore valid and the addition made by invoking the same cannot be sustained and therefore directed to be deleted." 23. Before us both the parties admitted that the decision of the Learned Commissioner of Income Tax(Appeals) is covered by the recent decision of the Hon'ble' Supreme Court in the case of Commissioner of Income-tax, Mumbai v. Walfort Share & Stock Brokers (P.) Ltd., [2010] 192 TAXMAN 211 (SC). We find that in the instant case genuineness of the transaction entered into by the assessee for purchase and sale of units were not in doubt. Further, the assessment year involved is assessment year 2001-2002 wherein the provisions of newly inserted section 94(7) were not applicable. In absence of any material brought on record by the Revenue to show that the transactions of purchase and sale of units were sham, we do not find any error in the order of the Learned Commissioner of Income Tax(Appea....
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....131 of the I.T. Act. After considering the statements of these persons and agreement, it was observed by the AO that the actual work done by ICL was short of work specified in the agreement. It was also noted by the AO that in the immediately subsequent assessment year i.e 2003-04, the assessee company has given commission only @ 1% though in the immediately preceding year i.e 2001-02 the rate of commission was 3%. Thus, it was observed that the case falls within the ambit of sec. 40A(2)(b) of the I.T. Act and as the payment to ICL is excessive and unreasonable taking into consideration the benefits deserved and accrued to the assessee company and taking the rate of subsequent year i.e A.Y. 2003-04, he restricted the commission payment to the tune of Rs. 1,23,84,594 which was paid in the A.Y. 2003-04 and disallowed the remaining amount of Rs. 124,57,986. 27. Before the CIT (A), the assessee's representative Shri G K Choksi submitted as under:- "2.1 The appellant had made commission payment of Rs. 2,48,42,580 at the rate of 2% on total advertisement revenue of the company to the said Indian Chronicle Ltd. [ICL]. The Assessing Officer states that it was related concerns w....
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.... the commission claimed for A.Y. 2002-03 on the ground that it is excessive and paid to related party u/s. 40A(2)(b). Apart from that the Assessing Officer has not pointed out as to how he considered only 1% commission for the year as reasonable as against 2% paid by the appellant. This may be appreciated in view of the particular fact that the payment is made as per the agreement entered into between the parties. 2.3 With reference to the above issue, the appellant further submits as under:- 1. The Assessing Officer has invoked the provisions of sec. 40A(2) and has held [towards the middle of page-5 of the assessment order just before the para marked 3.4] "that ICL is a related party within in the meaning of sec. 40A(2)(b) of the I.T. Act. For this inference the assessment order contains reasons in para marked 3.3 [starting from the bottom of page 4]. Therein the assessment order refers to a statement made in enclosure-4 of the audit report u/s. 44AB filed with the return. It is submitted firstly that the aforesaid audit report is at best an opinion expressed by an auditor who is neither assessee nor the Assessing Officer. His opinion is at best an expert's opini....
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....wing terms:- "........The fact that the revenue was also a party to the said erroneous assumption before the tribunal cannot stand in the way of the revenue resiling from an erroneous assumption of law...... The High court was of the opinion that the legal submission urged by the revenue before the high court, no doubt for the first time, did call for serious consideration. This was done to arrive at a correct decision in law relating to the liability to additional surcharge. If really addition surcharge was chargeable according to the Finance Act even in case the said sum of Rs. 19 represented business income, the High court cannot be called upon to act on the assumption that it is not so chargeable and answer the question stated. Such a course would neither be in the interest of law or of justice. That the revenue was also a party to the erroneous assumption of law makes little difference to the principle." 5. Obviously, the assessee's case is much stronger in so far as on a law point assessee is taking finally a stand [before the Assessing Officer himself] contrary to one which was taken by it in an earlier communication. The Assessing Officer cannot rely solel....
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....ny director of the payee company [viz. ICL]. vi) For sub clause (vi) part marked (A) does not apply because the assessee [LP] is not an individual and sub clause (B) thereof does not apply because no director [or his relative] of the payee company [LP] has substantial interest in the business of payee company [ICL]. Thus, none of the sub clauses apply to the assessee's case. Note:- Section 40A(2)(b) is drafted in a somewhat involved fashion but the Ld. authors Chaturvedi & Pithisaria in their treatise, 5th edition, volume-2, on page 2424 have expressed it in a lucid and clear fashion by segregating those provisions according to the status of the payer assessee. Obviously in our case, it is company. Relevant part would read as follows:- "In case of an assessee who is Where payment is made to Company Any director of the company Any person [individual firm company AOP, HUF, etc] having a substantial interest [i.e. owning at least 20% voting rights on holding of equity shares] in the company Any person of which a director, partner or member has a substantial interest in the company. Any relative of any such d....
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....erwise also the provisions of sec. 40A(2)(b) are not applicable vide para 6 above. So if sec. 40A(2)(b) is not applicable to the assessee to the assessee the question of effecting any disallowance in pursuance of sec. 40A(2)(a) does not arise. 11. Without prejudice, even in terms of sec. 40A(2)(b) this case does not call for any disallowance. On page-12 the Assessing Officer has tabulated relevant information for A.Y. 2000-01 to A.Y. 2004-05. From there it is obvious that the rate of commission was 3% in the immediately preceding year viz. A.Y. 2001-02 and it was 1% in wthe immediately succeeding year viz. 2003-04 against 2% of this year viz. A.Y. 2002-03 and the Assessing Officer has quantified disallowance on the basis of figures of the subsequent year. Apart from the fact that it is based merely on surmises and conjectures, the point is that ordinarily the preceding years' basis is adopted in framing an assessment. 12. Without prejudice, it is not a fit case for any disallowance whatsoever in view of the ratio decided of the Gujarat High Court decision in Voltamp Transformers P. Ltd. v. CIT [1981] 129 ITR 105 wherein even the increase in the amount of commissio....
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.... subsequent assessment year 2003-2004, the rate of commission paid in the rate of 1.5% in the assessment year 2000-01 was enhanced to 3% in the assessment year 20012002 without any justifiable reasons. Thus, the AO observing that the percentage of commission paid by the assessee in different years were different and there from concluded that commission paid at 2% to said ICL was excessive and therefore allowed such commission payment at Rs. 1,23,84,594/- which was the amount paid by the assessee company to M/s.ICL in the assessment year 2003-2004. 30. On appeal, the Learned Commissioner of Income Tax (Appeals) deleted the above disallowance by observing as under: "2.2 I have carefully considered the submissions of the appellant and the facts brought on record by the AO. The first issue which is to be decided is whether ICL to whom the commission has been paid falls within the definition of sec. 40A(2)(b) of the Act. The appellant vide letter dated 3-5-2005 had mentioned before the AO that the said company does not fall u/s. 40A(2)(b) of the Act. As per provisions of sec. 40A(2)(b) in case of company, related company would be a company having substantial interest i.e. ow....
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....ent revenue, the commission could have been paid considering the service rendered by the Advertisement Manager. In the statements also it has been accepted by Shri Sudarshan M Upadhyay that even in the advertisements which are sent by Advertisement Agency, colour schemes and change in law out is worked out by ICL and to the new parties they give complete information about lay out, budgeting etc. In view of these statements it is clear that services have been rendered by ICL. I have also gone through the agreement between the appellant company and ICL and also perused the explanatory statement pursuant to sec. 173(2) of the Companies Act wherein it has been clearly mentioned that the company shall pay advertisement management fee not exceeding 3% per annum. As thet work of ICL was less in comparison to the earlier year or less than as specified in the agreement, the appellant company itself has given the commission only @ 2% to ICL which is less than maximum rate of 3%. It has been held by Gujarat High court in the case of Voltamp Transformers P. Ltd. v. CIT [129 ITR 105] that so far as the legitimate business needs of an assessee or the benefit derived by or accruing to the assesse....
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....alled so excessive so as to warrant any disallowance by invoking the provisions of section 40A(2)(b) of the Act. We therefore do not find any good reason to interfere with the order of the Learned Commissioner of Income Tax (Appeals). It is confirmed. The ground of the appeal of the Revenue is dismissed. 32. Ground No. 4 of the appeal in A.Y. 2002-03 is directed against disallowance of Rs. 42,64,127 in respect of bad debts of Radhe Finance. 33. The brief facts of the case are that during the year, the assessee had claimed bad debts to the extent of Rs. 42,64,127 on account of amount given to Radhe finance in A.Y. 1997-98. It was observed by the AO that the main business activity of the appellant company is printing and publishing of newspaper and the interest income comprises 3% of the total income and the appellant company is not a NBFC and therefore, it cannot be said that money lent to Radhe Finance was given during the ordinary course of business. It was also observed by the AO that appellant is not eligible for deduction of claim of bad debt with regard to the principal amount because it is not engaged in the business of banking/money lending. The AO further observed tha....
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....Finance. According to the Learned Assessing Officer, the amount represents loan advanced by the assessee to said M/s. Radhe Finance during the assessment year 1997-98. The assessee has shown interest income of Rs. 25,89,127/- which was offered to tax in assessment year 1997-98 and thereafter no interest income was offered to tax. According to the Learned Assessing Officer, the assessee is not an NBFC and therefore it cannot be held that the assessee was engaged in financing business. As the amount in question was an advance amount and the assessee was not engaged in financing business as per the Learned Assessing Officer, the amount cannot allowed as bad debts in view of the provisions of section 36(2) of the Act. On appeal, the Learned Commissioner of Income Tax (Appeals) deleted the above disallowance by observing as under: "I have considered the submission of the appellant and the facts brought on record by the AO carefully. As per provisions of sec. 36(ii) of the Income Tax Act, 1961 the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year will be allowed as deduction subject to provisions of....
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....nced in the course of the financing business or not. The Hon'ble Supreme Court in the case of TRF Ltd. (supra) has laid down that it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable; it is enough if bad debt is written off as a irrecoverable in the accounts of the assessee. Therefore, it is observed that the above decision is not relevant for adjudicating the issue under dispute which has been brought out hereinbefore and the Revenue has never contended that the amount was not allowed because it has not been shown by the assessee to have become bad in the year under consideration rather the ground of the AO for disallowance is that the debt in question was not business debt. It is observed that the Learned Commissioner of Income Tax (Appeals) has held that the assessee was engaged in financing business only on the ground that the assessee has earned Rs. 7,43,26,426/- as interest income and according to the Learned Commissioner of Income Tax(Appeals) the assessee is undoubtedly engaged in the financial business, lease, market advances as the assessee has earned high interest income from year to year. In our considered opinion merely....
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.... the issue afresh by passing a speaking order as per law. Needless to mention that the Learned Assessing Officer shall allow reasonable opportunity of hearing to the assessee before adjudicating the issue afresh. We therefore set aside the order of the lower authorities on this issue and order accordingly. Thus, this ground of the appeal of the Revenue is allowed for the statistical purpose. 37. Ground No.3 of the Revenue's appeal in A.Y. 2003-04 is directed against the order of the Learned Commissioner of Income Tax (Appeals) restricting the disallowance under Section 14A to Rs.24,70,456/- . 38. The amount of Rs. .24,70,456/- stated in the above ground comprises of two elements namely Rs. .24,20,456/- on account of interest disallowance and Rs. .50,000/- on account of administrative expenses. 39. It is observed in Revenue's appeal for Assessment Year 2004-05 ground No.2 also relates to restricting of disallowance under the head administrative to Rs. .50,000/- in place of Rs. .5,50,000/-. Further, the assessee's appeal for the Assessment Year 2002-03 in ground No.3 also relates to confirming of the disallowance of Rs. .3,60,000/- out of administrative and general expenses ....
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.... "4.3 I have considered the submission of the appellant and the fcts of the case carefully. As the dividend was taxable during this year, which has been offered for tax, the Learned Assessing Officer was not justified in disallowing the interest under section 14A on the investments which were made towards shares from which income has been shown as taxable. Under the provisions of section 14A, the interest would be disallowed only which is attributable for tax exempt income. During the year, the appellant's tax free income was from the bonds of Sardar Sarovar Narmada Nigam Limited Series-I and Bonds of Ahmedabad Municipal Corporation. In both the Bonds, the appellant has invested Rs.50 crores. The appellant was argued that it had sufficient funds in the form of shares capital and reserves, therefore, no interest can be attributable for investment in these bonds. However, on specific examination, it was found that the investment has been made in these bonds from C.C. account and transferred from the loan against fixed deposits, which shows that the investment was made from the loan account against pledge of fixed accounts and the investment was not from interest free capital. The ap....
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.....24,20,456/- is hereby confirmed and the remaining amount is deleted. As far as administrative expenses of Rs.5,00,000/- is concerned, I find that considering the fact that the tax free income has been received only from two bonds, the disallowance made by the Learned Assessing Officer of Rs.5,00,000/- towards collection of this interest is too high and therefore the same restricted to Rs.50,000/- and the remaining amount is hereby deleted. Accordingly, this ground is partly allowed." 43. We find that no error in the finding of the Learned Commissioner of Income Tax (Appeals) to the effect that only Rs.50 crores was invested for earning tax free income in assessment year 2003-04 could be pointed out by the Learned Departmental Representative. Further, the Learned Departmental Representative also could not dispute the finding of the Learned Commissioner of Income Tax(Appeals) that out of said Rs. 50.00 crores, Rs. 40.00 crores was invested on 20-9-2002 and Rs. 10.00 crores was invested on 21-3-2002. In view of the above undisputed facts in our considered opinion there was no error in the order of the Learned Commissioner of Income Tax(Appeals) to the extent it restrict the disall....
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....l Representative also agreed. We therefore, restore this issue back to the file of the Learned Assessing Officer for all the years under consideration for adjudication afresh after taking into consideration the aforesaid two decisions of the Hon'ble High Courts and after allowing reasonable opportunity of hearing to the assessee. Thus, all the grounds of appeal of the Revenue as well as of the Assessee in respect of the above issue are allowed for statistical purposes. 47. Ground No. 4 in revenue's appeal for A.Y. 2003-04 is directed against order of the CIT (A) deleting disallowance of Rs. 99014 u/s. 43B. 48. The brief facts of the case are that the AO observed from the return of income that the assessee has deposited employees' contribution to provident fund and ESI after the due date. He therefore added Rs. 99014 to the income of the assessee u/s. 36(1)(va) r.w.s. 2(24)(x) of the Income Tax Act, 1961. On appeal, the CIT(A) deleted the disallowance by observing that the tribunal in assessee's own case in A.Y. 1996-97 vide order dated 2-9-2005 in I.T.A. No. 1873/AHD/2000 confirmed the order of CIT(A) in deleting the disallowance. Following the same, he deleted the disall....
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....so is sought to be amended by bringing about an uniformity in tax, duty, cess and fee on the one hand vis-a-vis contributions to welfare funds of employee(s) on the other. This is one more reason why it is held that the Finance Act, 2003, is retrospective in operation. Accordingly, Finance Act, 2003, will operate retrospectively w.e.f. 1st April, 1988 (when the first proviso stood inserted). Hardship and the invidious discrimination would be caused to the assessee(s) if the contention of the Department is to be accepted that Finance Act, 2003, to the above extent, operated prospectively. Take an example-in the present case, the respondents have deposited the contributions with the R.P.F.C. after 31st March (end of accounting year) but before filing of the returns under the IT Act and the date of payment falls after the due date under the Employees' Provident Fund Act, they will be denied deduction for all times. In view of the second proviso, which stood on the statute book at the relevant time, each of such assessee(s) would not be entitled to deduction under s. 43B for all times. They would lose the benefit of deduction even in the year of account in which they pay the contri....
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....e present A.Y. 2005-06. He therefore held that the expenditure if allowable has to be allowed in the earlier relevant A.Y. and therefore, disallowed the entire amount of Rs. 20,75,450 observing that it did not pertain to the year under appeal. 52. On appeal, the CIT (A) observed that it is seen from the details filed by the assessee that the Advocate had raised bill in September 2003 and that another payment of USD 10,000 was also required as per the agreement entered into July 2003 for further litigation. The CIT (A) therefore held that the liability has crystallized during the year under consideration and therefore the assessee was justified in claiming the amount as deduction in the year under consideration. Further, he also held that the AO has not disputed the admissibility of the expenses as business expenses. Accordingly, he vacated the disallowance made by the AO. 53. The DR supported the order of the AO, whereas the AR relied upon the order of the CIT (A). 54. After hearing the rival submissions and perusing the orders of the lower authorities and the materials available on record, we find that the assessee's claim of deduction for payment made to Advocate of Rs. ....
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....d in absence of any material brought before us to show that the amount of fee was crystallized before 31-3-2002, we do not find any error in the order of the Learned Commissioner of Income Tax (Appeals). It is confirmed. The ground of the appeal of the Revenue is dismissed. 55. Ground No. 1 of the cross objection of the assessee in A.Y. 2001-02 relates to confirming disallowance of Rs. 3,91,001 on account of share sale service charges. Ground No. 5 of assessee's appeal in A.Y. 2004-05 is also directed against confirming disallowance of Rs. 7,19,147 incurred on account of share sale service charges. 56. The brief facts of the case are that on verification of details of misc. expenses filed by the assessee, the AO found that an amount of Rs. 3,91,001 is claimed as deduction towards expenses under the head 'share sale service charges'. The Assessing Officer disallowed deduction on the ground that the assessee was not a dealer in shares and therefore, the expenditure was not a business expenditure. The Assessing Officer observed that assessee has incurred the expenditure on sale of shares held by it as investor. Therefore he held that the expenditure in question was incurred in c....
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....therefore, the same is dismissed as not pressed in both the years under appeal. 65. Ground No. 2 of the appeal of the assessee for A.Y. 2002-03 relates to disallowance of interest expenses of Rs. 34,09,000 u/s. 14A. . Ground No.3 of the assessee's appeal for the Assessment Year 2004-05 is directed against the order of the Learned Commissioner of Income Tax(Appeals) confirming disallowance of Rs. .1,70,71,871/- on account of interest expenses invoking section 14A of the Act. 66. The brief facts of the case are that the Assessing Officer observed that the assessee made investment of Rs. 99.79 crores as on 31-3-2002. Such investment as on 31-3-2001 was Rs. 33.51 crores. The whole investment except Rs. 2.50 crores in flexibond of IDBI and in shares of mutual funds give either capital gain or dividend income. Interest income on IDBI flexibonds was offered for tax. In the year, there was increase in loan of Rs. 18.54 crores in comparison to A.Y. 2001-02. He also observed that increase in reserves and shares capital was much smaller than the increase in investment in shares and mutual funds. He also observed that interest expenses increased from Rs. 29.53 lacs in A.Y. 200102 to Rs. ....
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....r carefully. I find that on one hand the appellant has invested huge amount in shares and mutual funds from where dividend income is not taxable and on other hand it has raised loan from bank which has been mentioned in assessment order. The Assessing Officer has also brought out in the assessment order that the income in reserve was also not used in the investment of shares. There is no separate account by which appellant could substantiate that the investment was made out of interest free funds. The onus was on the appellant to show that the investment in shares was out of non-interest bearing funds which it has failed to show. The issue has also been elaborately dealt with by Hon'ble I.T.A.T. Ahmedabad in the case of H.K. Bhatt vs. ITO 91 ITD 311 wherein after considering various arguments, it has been held the proportionate interest is to be disallowed under section 14A in similar facts. Similarly, as the appellant is maintaining huge portfolio of shares and mutual funds, the administrative expenditure is also to be disallowed on proportionate basis. Considering these facts and judicial position, the Assessing Officer was fully justified in disallowing proportionate interes....
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....-3-2002. Such investments were Rs. 142.95 crores as on 31-3-2004 and Rs. 106.73 crores as on 31-3-2003. According to the Learned Assessing Officer increase in reserves and surplus of Rs. 36.64 crores in Assessment Year 2002-03 was lesser than the increase in the above investment. In the Assessment Year 2004-05 the assessee has not substantiated that only interest free funds were used for making such investment. He assuming that investment was made out borrowed funds as well disallowed proportionate interest expenditure as being incurred not for business at Rs. 34.09 lakhs in the Assessment Year 2002-03 and Rs. .1.17 crores in the Assessment Year 2004-05. On appeal, the Learned Commissioner of Income Tax (Appeals) confirmed the action of the Learned Assessing Officer. Before us, the Learned Authorised Representative of the assessee submitted that interest free funds available with the assessee was much more than the investment made in tax free bonds and shares and therefore disallowance of the interest was not proper. We find that no nexus was proved by the Revenue between the investment in tax free bonds and shares on the one hand and borrowed capital on the other hand. Further, we....
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.... the same time, s. 43B (main section) made it mandatory for the Department to grant deduction in computing the income under s. 28 in the year in which tax, duty, cess, etc., is actually paid. However, Parliament took cognizance of the fact that accounting year of a company did not always tally with the due dates under the Provident Fund Act, Municipal Corporation Act (octroi) and other tax laws. Therefore, by way of first proviso to s. 43B, an incentive/relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax, duty, cess or fee is paid before the date of filing of the return under the IT Act (due date), the assessee(s) then would be entitled to deduction. However, this relaxation/incentive was restricted only to tax, duty, cess and fee. It did not apply to contributions to labour welfare funds. The reason appears to be that the employer(s) should not sit on the collected contributions and deprive the workmen of the rightful benefits under social welfare legislations by delaying payment of contributions to the welfare funds. However, the second proviso resulted in implementation problems, which resulted in the enactment of Finance....
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....forestated reasons, Finance Act, 2003, to the extent indicated above, is curative in nature, hence, it is retrospective and it would operate w.e.f. 1st April, 1988 (when the first proviso came to be inserted).-Alom Extrusions Ltd. (judgment of the Calcutta High Court in IT Appeal No. 22 of 2006, dt. 15th May, 2006) and CIT vs. Sabari Enterprises (2007) 213 CTR (Kar) 269 affirmed; CIT vs. Pamwi Tissues Ltd. (2008) 215 CTR (Bom) 150 set aside; Allied Motors (P) Ltd. Etc. vs. CIT (1997) 139 CTR (SC) 364 : (1997) 224 ITR 677 (SC) followed; CIT vs. J.H. Gotla (1985) 48 CTR (SC) 363 : (1985) 156 ITR 323 (SC) applied." Respectfully following the decision of the Hon Supreme court, we set aside the order of the CIT (A) and delete the disallowance of Rs. 2,77,427 on account of contribution to PF and ESI u/s. 43B and allow this ground of appeal of the assessee. 73. Ground No. 5 of the assessee's appeal in A.Y. 2002-03 relates to charging of interest u/s. 234B, 234C and 234D of the Act. 74. The AR of the assessee submitted that charging of interest u/s. 234B, and 234C of the Act was consequential. He submitted that regarding charging of interest u/s. 234D, the was introduced in the st....
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....ation the above cited decision of the Hon'ble Kerala High Court and after allowing reasonable opportunity of hearing to the assessee. Thus, this ground of appeal of the assessee is partly allowed for statistical purposes. 76. Ground No.2 of the appeal of the assessee in assessment year 20042005 is directed against the order of the Learned Commissioner of Income Tax(Appeals) confirming disallowance on account of business development expenses Rs. 2,08,25,851/- regarding "lawajam scheme" and Rs.16,97,96,681/- regarding "guaranteed gift scheme" considering them to be capital in nature. 77. The brief facts of the case are that the assessee company claimed an amount of Rs. 19,06,22,532/- towards business development expenses. They were incurred on the incentive given to the subscribers of daily newspaper paying subscription in advance for the period of 12 months and also in respect of various guaranteed gift schemes to all the subscribers. The Learned Assessing Officer observed that under the "lawajam scheme" of daily newspaper the subscriber has to pay the subscription in advance for a period of 12 months. The subscribers are offered incentives by way of gifts. The expenses incurr....
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....nt's news paper. Both these schemes i.e. Lawaja Scheme as also guaranteed gift scheme referred to above are in the nature of incentives to the subscribers to keep their association with the appellant. Therefore, though it is not in dispute that both these schemes were introduced for preserving the customers base of the assessee company, it was incurred for protecting the income earning apparatus. Thus, the expenditure incurred could be in the nature of creating goodwill base. In the circumstances, I fully agree with the Learned Assessing Officer that the expenditure is capital in nature and it is not in the nature of a revenue expenditure incurred wholly and exclusively for the purpose of carrying out the appellant's business. It is thus to be considered that the expenditure is incurred for maintenance of reputation and it cannot be allowed as admissible revenue expenditure. This view is supported by the decision of Bombay High Court in the case of CIT Vs. Homi Mehta reported at 11 ITR 142. In the said case, the assessee was a director of the company and for maintaining his business reputation he incurred certain expenses on gifts of money, which was held to be disallowable by the ....
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....o the decision of Hon'ble Bombay High Court in the case of CITA vs. Sir Homi M. Mehta (supra) relied upon by the Learned Commissioner of Income Tax (Appeals) we find that the same is distinguishable on facts and is not applicable to the facts of the present case. In the case before the Hon'ble Bombay High Court, the assessee was a Managing Director of a Company and the assessee gifted Rs. .3,00,000/- to the said company and claimed the same as business expenditure. On the above facts the Hon'ble High Court found that the expenditure was incurred partly to earn income which is chargeable under the head other sources (u/s.12 of the Income Tax Act, 1922), partly for the protection of the income of the other shareholder in the company, and partly for the protection of the assessee's business reputation. Thus, it was found by the Hon'ble High Court that expenditure was not incurred wholly and exclusively for the purposes of business. In contrast to the above facts, in the instant case it is observed that the expenditure in question was not incurred for earning any income which is chargeable under the head "Income from Other Sources" or with a view to protect the income o....